WEBVTT - Volcker Rule Is Cumbersome, Goldman Sachs CEO Blankfein Says 0:00:09.720 --> 0:00:12.880 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene with 0:00:13.600 --> 0:00:16.560 David Gura. Daily we bring you insight from the best 0:00:16.560 --> 0:00:22.279 of economics, finance, investment, and international relations. Find Bloomberg Surveillance 0:00:22.320 --> 0:00:27.000 on Apple Podcasts, SoundCloud, Bloomberg dot Com, and of course 0:00:27.320 --> 0:00:34.040 on the Bloomberg Let's count to ten, but let's do 0:00:34.080 --> 0:00:37.559 it in Greek. That's what quants do. Matthew Rothman, formerly 0:00:38.120 --> 0:00:40.639 enormous it Lehman Brothers it wasn't his fault they went 0:00:40.680 --> 0:00:43.279 down in flames, is now at Credit Squeeze. He's had 0:00:43.320 --> 0:00:48.159 a global quantitative equity research and really has major credit 0:00:48.159 --> 0:00:51.239 out of Chicago. In the Greek letters and trying to 0:00:51.280 --> 0:00:54.480 figure out in this quiet time of low volatility, want 0:00:54.560 --> 0:00:57.520 to do? Joining us well, taking notes, Gabrielle Santos of 0:00:57.640 --> 0:01:01.280 JP Morgan, Matt, wonderful to have you with us here 0:01:01.360 --> 0:01:03.640 this morning. I wanted to a look back of ten years. 0:01:03.760 --> 0:01:06.920 We all read Fooled by Randomness, We read this that 0:01:07.280 --> 0:01:10.400 other quantz stuff. I think of ken Osban and binomial 0:01:10.880 --> 0:01:13.600 clouds and Bob dot dot. Have we learned anything? Are 0:01:13.640 --> 0:01:16.320 we any smarter ten years down the road than the 0:01:16.400 --> 0:01:18.920 quants were ten years ago or a lot smarter today 0:01:18.959 --> 0:01:21.360 than we were ten years ago. Um, we're really now, 0:01:21.360 --> 0:01:23.800 I would kind of say, almost in quant three point oh, 0:01:23.840 --> 0:01:25.960 where ten years ago we were really at the end 0:01:26.000 --> 0:01:29.520 of quant one point Um. We've learned a lot more 0:01:29.560 --> 0:01:32.280 about how to get out of each other's way, We've 0:01:32.360 --> 0:01:35.040 learned a lot about trading, We've learned really what other 0:01:35.120 --> 0:01:37.759 people know U and really have. The world has become 0:01:37.840 --> 0:01:40.760 so much more digitalized every day. Uh, and so just 0:01:40.800 --> 0:01:44.000 the levels of data that we have, machines that are 0:01:44.080 --> 0:01:46.440 at our at our fingertips are just so much more powerful. 0:01:46.840 --> 0:01:48.960 Um that we've just made a lot of advance. Whether 0:01:49.000 --> 0:01:53.840 it's seven or or two thousand seven, it's about blown 0:01:53.920 --> 0:01:57.800 up certitude of hedges or arbitrage, or I've got a 0:01:57.840 --> 0:02:01.680 constructed trade that blows up, maybe it's leverage or whatever. 0:02:01.960 --> 0:02:05.400 What is the constructive trade of two thousand and seventeen 0:02:05.720 --> 0:02:10.160 that worries you? What worries me is um one. There's 0:02:10.200 --> 0:02:13.120 just been a a rush into quant and there's almost 0:02:13.120 --> 0:02:16.480 been a little bit of a mania on the belief 0:02:16.560 --> 0:02:19.240 that of what machine learnings can do, can can do 0:02:19.360 --> 0:02:21.960 for you, uh, and what what it's capable of. I 0:02:21.960 --> 0:02:23.919 think we need to take a step back and really 0:02:23.960 --> 0:02:25.840 think about where we are and what it can do 0:02:25.880 --> 0:02:28.960 and can't do. Full editorial agree with that statement, and 0:02:28.960 --> 0:02:31.560 you see the FT article today which really shows the 0:02:31.639 --> 0:02:34.480 wall of money going into your world not seeing till 0:02:34.560 --> 0:02:39.920 Eban is anti fragile, talks about stressing and testing the system, 0:02:39.960 --> 0:02:45.799 about robustness found through small failures. Are we there yet? 0:02:45.840 --> 0:02:48.560 Are we more anti fragile where you've got a greater 0:02:48.680 --> 0:02:52.400 confidence in the system. I think that what we've really 0:02:52.480 --> 0:02:54.360 learned was what I learned the first day in my 0:02:54.440 --> 0:02:57.079 class at the University of Chicago, where Eugene fam I 0:02:57.200 --> 0:02:59.120 kind of came in and said, everything I'm going to 0:02:59.160 --> 0:03:02.160 teach you is long. It's a model, right, and we 0:03:02.240 --> 0:03:04.880 know it's a model, it's not reality. And I think 0:03:05.200 --> 0:03:08.200 that most quants are very careful now to understand where 0:03:08.240 --> 0:03:11.600 their models fail. What I worries me is that that 0:03:11.680 --> 0:03:13.840 becomes a lot harder when you get into the deep 0:03:13.919 --> 0:03:18.440 learning machines UH and artificial intelligence to really understand what 0:03:18.560 --> 0:03:21.360 your machines don't know. If you don't really know what 0:03:21.440 --> 0:03:24.040 your machines are doing and how they're doing it. And 0:03:24.080 --> 0:03:26.120 I think those are the kind of systematic failures that 0:03:26.160 --> 0:03:29.520 worry me, Matthew, where do you think the next financial 0:03:29.520 --> 0:03:34.680 crisis will come from? What worries me most about that 0:03:34.920 --> 0:03:37.680 is that we've been in an area an era of 0:03:37.840 --> 0:03:42.240 very low volatility UH and in an era of particularly 0:03:42.320 --> 0:03:46.400 low dispersion across returns, which is different than volatility. General 0:03:46.520 --> 0:03:49.360 volatility can be driven by macro events UH, and so 0:03:49.400 --> 0:03:52.040 you can see the VIX spike on macro news, but 0:03:52.160 --> 0:03:55.240 all stocks may or may not move together at that point. 0:03:55.480 --> 0:03:58.000 What's really remarkable about this time is that we've seen 0:03:58.160 --> 0:04:02.760 very low dispersion across returns idiosyncratic news as we kind 0:04:02.760 --> 0:04:06.160 of call it, an individual stock specific news, Those features 0:04:06.160 --> 0:04:09.240 are very low, and so that, more than the VIX 0:04:09.680 --> 0:04:13.200 being low, is what I think leads people towards leverage UM. 0:04:13.240 --> 0:04:16.040 And so what we really need to see is um 0:04:16.320 --> 0:04:21.680 for some kind of orderly pick up in dispersion across returns. Matthew. 0:04:21.680 --> 0:04:23.000 What I'm trying to get at, right is that you're 0:04:23.000 --> 0:04:24.880 saying that quants are more careful now, so that they 0:04:24.960 --> 0:04:27.279 learned things in terms of models that they look and 0:04:27.440 --> 0:04:30.880 the analysis that they're going through because of financial crisis. 0:04:30.920 --> 0:04:32.880 But what if we had a financial crisis or a 0:04:32.920 --> 0:04:35.200 crisis that came from something that we had to even 0:04:35.240 --> 0:04:37.960 thought about. What does that mean for your models, the 0:04:38.040 --> 0:04:41.920 quants models? It means something bad for everybody's models. Uh. 0:04:42.000 --> 0:04:44.719 You know, if there's something that none of us can foresee, 0:04:44.720 --> 0:04:46.599 of course your quant models aren't going to look at it, 0:04:46.720 --> 0:04:49.320 and of course your fundamental analysts aren't going to get it. 0:04:49.320 --> 0:04:52.680 It's bad for everybody. Okay, this is this is really important. Man. 0:04:52.680 --> 0:04:54.520 If you bring up this chart, this is where Gabriel 0:04:54.600 --> 0:04:57.360 Santos is living every day, and the low of the quiet, 0:04:57.400 --> 0:04:59.560 you can look at any sset classes happens to be 0:04:59.880 --> 0:05:02.120 the VIX and the quiet down to nine point nine 0:05:02.160 --> 0:05:05.280 eight right now on the VIX. Is it harder for 0:05:05.320 --> 0:05:09.520 you to have certitude about fancy quant systems given dampen 0:05:09.720 --> 0:05:12.919 volatility in that all of these you know, the media 0:05:13.000 --> 0:05:16.279 talks about them's linear functions and straight lines and you 0:05:16.320 --> 0:05:18.720 and I know they're not. Is there almost a risk 0:05:18.760 --> 0:05:23.520 of a convexity an acceleration of outcomes and bad outcomes 0:05:23.560 --> 0:05:26.120 because of where the VIX is right now? You know, 0:05:26.160 --> 0:05:28.880 the VIX is very important to look at um and 0:05:28.960 --> 0:05:32.320 to understand volatility, but it doesn't measure the volatility that 0:05:32.400 --> 0:05:35.760 concerns quants the most, which is that we want to 0:05:35.760 --> 0:05:39.599 look at the dispersion among returns. So if everything is 0:05:39.640 --> 0:05:43.880 moving together exactly, that makes it very hard. That's different 0:05:43.920 --> 0:05:48.320 than time series volatility or macro shock volatility, and um, 0:05:48.360 --> 0:05:51.880 so I'm less concerned with macro shock volatility, but I'm 0:05:51.920 --> 0:05:56.240 really concerned about if you have a huge dispersion for 0:05:56.279 --> 0:05:59.760 some reason that was to kick up in across returns. Okay, well, 0:05:59.800 --> 0:06:02.040 one one final question on this. We're gonna geek out 0:06:02.040 --> 0:06:04.120 here on the back end of the time series function 0:06:04.160 --> 0:06:07.160 as an epsilon. Gabriella learning this in Pennsylvania. Some of 0:06:07.160 --> 0:06:09.400 them struggle through it with the CEF. Hey on the 0:06:09.440 --> 0:06:11.880 back end of a linear function. Thank you. James Hamilton 0:06:11.960 --> 0:06:14.760 out at San Diego. Is this epsilon? Do you have 0:06:14.839 --> 0:06:17.320 a clue or does she have a clue, or does 0:06:17.400 --> 0:06:20.640 Jamie Diamond have a clue? Or Nil saus have a 0:06:20.640 --> 0:06:25.440 clue where the epsilon is in this system? Today? You know, 0:06:26.800 --> 0:06:30.080 we do have some clues on where the epsilons are. Um. 0:06:30.120 --> 0:06:32.480 If you're a good quant you are stressing your models 0:06:33.120 --> 0:06:36.919 all the time exactly, and you're trying to understand what 0:06:37.040 --> 0:06:39.520 doesn't what don't you know? Uh? And that is what 0:06:39.680 --> 0:06:42.240 is most dangerous. Uh. And that's true whether your quant 0:06:42.360 --> 0:06:45.320 or not. Now take the brilliance of this gabriella over 0:06:45.320 --> 0:06:48.320 to your world. You have to explain to pools of money, 0:06:48.680 --> 0:06:52.600 the Rothman world. How do you take his world over 0:06:52.640 --> 0:06:54.520 to mom and pop with a pot of money or 0:06:54.520 --> 0:06:56.880 an institution with a pot of money. So a couple 0:06:56.880 --> 0:06:58.960 of the concepts we were discussed saying, first of all, 0:06:59.000 --> 0:07:01.560 in terms of all until day, that's a conversation we've 0:07:01.560 --> 0:07:04.120 been having a lot with, as you called the mom 0:07:04.120 --> 0:07:08.240 and pop Inbustorum. Our view on low volatility um is 0:07:08.279 --> 0:07:10.720 that this is a very different world than it's been 0:07:10.800 --> 0:07:14.440 for the last six years. Volatility in terms of economic 0:07:14.520 --> 0:07:17.000 data is much lower than it used to be. You 0:07:17.080 --> 0:07:20.480 now have a much better, much more solid global economy, 0:07:20.760 --> 0:07:23.680 and the volatility and earnings has improved as well. So 0:07:23.760 --> 0:07:27.440 we would this low volatility to us makes sense and 0:07:27.520 --> 0:07:29.760 that's something we've been trying to explain to our investors. Okay, 0:07:29.800 --> 0:07:32.240 this has been fabulous. We're gonna put this conversation with 0:07:32.280 --> 0:07:35.840 Miss Santos and Dr Rothman out on iTunes on the 0:07:35.920 --> 0:07:38.800 podcast today this is extraordinary, and I'll throw some books 0:07:38.840 --> 0:07:42.000 out on social media as well to keep up, including 0:07:42.000 --> 0:07:59.960 Sheldon Atenberg's classic on the Greek letter, James David's uh, 0:08:00.000 --> 0:08:03.360 among other things, was an admiral in the Navy, and 0:08:03.440 --> 0:08:06.360 like all people going up the food chain, he even 0:08:06.400 --> 0:08:10.880 spoke to marines, having forbid on destroyers, on aircraft carriers, 0:08:10.960 --> 0:08:15.520 and even spoke to other parts of our military operations. UH. 0:08:15.680 --> 0:08:18.360 Mrs de Retus has moved on to international relations at 0:08:18.400 --> 0:08:22.880 the Fletcher School of Tuft University. His book, The Leader's Bookshelf. 0:08:23.760 --> 0:08:26.160 The Leader's Bookshelf is my book of the summer. I 0:08:26.240 --> 0:08:31.280 can't say enough about it. Is just absolutely spectacular, giving 0:08:31.280 --> 0:08:35.160 you a wide set of books. Admiral, good morning, great, 0:08:36.880 --> 0:08:39.600 it's going very good. In the back of The Leader's Bookshelf, 0:08:39.640 --> 0:08:43.840 you spend more time on a general from Brighton, Massachusetts 0:08:43.840 --> 0:08:48.000 than anybody in your book, maybe with the possible exception 0:08:48.040 --> 0:08:50.760 of Maddis, but there's a beautiful point there where you 0:08:50.800 --> 0:08:55.080 have Kelly of Boston and Maddis with seven hundred or 0:08:55.120 --> 0:09:00.280 three thousand books in their library. General Kelly is a leader. 0:09:00.720 --> 0:09:04.600 The president is not. What will General Kelly teach the 0:09:04.640 --> 0:09:08.720 president of the United States. Well, going back to the book, 0:09:08.760 --> 0:09:12.600 the Leader's Bookshelf, I would suggest that John Kelly pulled 0:09:12.640 --> 0:09:15.280 the book out and talked to the President about three 0:09:15.280 --> 0:09:19.080 books that are in there. One is by his National 0:09:19.120 --> 0:09:23.520 Security advisor, General H. R. McMaster. It's General Election and Duty, 0:09:23.559 --> 0:09:26.160 and I think Kelly needs to say to the president, 0:09:26.760 --> 0:09:30.360 Mr President, my intention is to speak truth to your power, 0:09:31.400 --> 0:09:34.120 as the Joint chiefs of Staff did not do during 0:09:34.160 --> 0:09:36.480 the war in Vietnam. The second one is Doris Kearns 0:09:36.480 --> 0:09:41.000 Goodwin's Team of Rivals and the idea that we can 0:09:41.040 --> 0:09:44.120 have rivals in this White House, but at the end 0:09:44.120 --> 0:09:46.840 of the day, it has to be a team, not 0:09:47.000 --> 0:09:50.280 just a team of rivals. And then thirdly, I think 0:09:50.320 --> 0:09:53.640 the book that uh Donald Trump ought to read is, 0:09:53.760 --> 0:09:56.240 and this may surprise you a Connecticut Yankee and Keen 0:09:56.360 --> 0:10:01.360 Arthur's Court for Innovation for Change, because he's got to 0:10:01.440 --> 0:10:04.000 change the way he's doing business at this point. Now. 0:10:04.600 --> 0:10:07.640 General Kelly, even with all of his characteristics, may not 0:10:07.679 --> 0:10:09.760 be able to get the President to read those books, 0:10:09.760 --> 0:10:12.360 but he can talk to him about them. He can 0:10:12.600 --> 0:10:15.600 drive on those principles and hope to bring some order 0:10:15.640 --> 0:10:18.720 out of chaos in the White House alongside Ivanka Trump 0:10:18.920 --> 0:10:21.640 has been quoted as saying she's thrilled to be alongside 0:10:21.679 --> 0:10:25.360 the marine general. Tell me about command and control in 0:10:25.360 --> 0:10:28.600 the world is of Rita's or Kelly? What does that 0:10:28.640 --> 0:10:32.800 actually mean? When the media talks about general's coming in 0:10:32.880 --> 0:10:37.920 with command and control, translate that. So when I was 0:10:38.040 --> 0:10:41.200 the Supreme Alley Commander of NATO, I had control of 0:10:41.720 --> 0:10:44.800 hundreds of thousands of forces. And the one thing you 0:10:44.960 --> 0:10:48.120 learn early on in a military career is that there 0:10:48.160 --> 0:10:50.800 can be only one chief of staff. My chief of 0:10:50.840 --> 0:10:53.920 step by the way, Tom was a German four star general, 0:10:54.200 --> 0:10:56.800 and you haven't seen order and discipline that you've seen 0:10:56.800 --> 0:11:00.719 that German general as a chief of staff. Um. And 0:11:00.760 --> 0:11:03.679 I think John Kelly knows this equally well. He was 0:11:03.760 --> 0:11:06.680 commander of Southern Command while I was over there in Europe, 0:11:07.120 --> 0:11:10.560 and he will seek to drive home the principle that 0:11:10.960 --> 0:11:14.520 no one stands alongside the chief of staff. That just 0:11:14.920 --> 0:11:17.440 doesn't work, and we saw it blow up already with 0:11:17.520 --> 0:11:21.640 the previous ban and arrangement. There's only one way to 0:11:21.800 --> 0:11:24.240 run the staff and a book Bonka. Trump wants to 0:11:24.280 --> 0:11:28.040 be on the staff and not just be an exocicio adviser. 0:11:28.120 --> 0:11:29.520 That's a different role. But if she wants to be 0:11:29.559 --> 0:11:32.600 on the staff, she reports to the key word here 0:11:32.920 --> 0:11:35.679 chief of Staff, and well Strees, let me ask you 0:11:35.720 --> 0:11:38.000 a question here about how you might approach this job. 0:11:38.080 --> 0:11:40.480 Something that's been highlighted here in recent days is that 0:11:41.360 --> 0:11:43.439 John Kelly doesn't have a whole lot of experience dealing 0:11:43.480 --> 0:11:45.160 with Congress. A lot of what the chief of Staff 0:11:45.200 --> 0:11:48.480 does is finesse the president's agenda with the legislative agenda 0:11:48.760 --> 0:11:51.520 on Capitol Hill. If you were in his shoes, how 0:11:51.559 --> 0:11:55.400 would you foster or build that relationship or better that 0:11:55.480 --> 0:11:58.839 relationship between the White House and the Congress. Great point, 0:11:58.920 --> 0:12:02.480 David um One. A little notice thing about John Kelly 0:12:02.640 --> 0:12:05.280 I'll add to the conversation is that he spent two 0:12:05.360 --> 0:12:09.560 years on Capitol Hill as a one star Marine general 0:12:09.679 --> 0:12:13.400 in charge of the U. S. Marine Corps relationships with 0:12:13.840 --> 0:12:17.840 the Congress. So he has traveled, he has interacted. He 0:12:17.960 --> 0:12:21.160 is well known up there, not as a political figure 0:12:22.000 --> 0:12:24.240 but as a military figure. So the key for him, 0:12:24.320 --> 0:12:26.480 Your point is that he has to be able to 0:12:26.520 --> 0:12:30.959 translate his previous role on Capitol Hill of representing Marine 0:12:31.000 --> 0:12:33.920 Corps to now representing the President of the United States 0:12:34.000 --> 0:12:37.280 and the executive branch. He needs to talk to the 0:12:37.280 --> 0:12:40.520 people on the hill, use the personal relationships he has, 0:12:40.559 --> 0:12:43.480 but convinced them that he can make that transition, and 0:12:43.520 --> 0:12:45.760 I think he can. I interviewed him shortly after he 0:12:45.800 --> 0:12:48.160 became the Secretary of the Department of Homeland Security, and 0:12:48.160 --> 0:12:50.840 I was struck by his sense of duty. He told 0:12:50.840 --> 0:12:52.920 me that he hadn't met the president before their first 0:12:52.960 --> 0:12:55.719 meeting after Donald Trump had been elected president. He was 0:12:55.760 --> 0:12:58.600 asked to do the job right after that. As I said, 0:12:58.880 --> 0:13:01.959 a real sense of duty evaded his conversation about what 0:13:02.080 --> 0:13:05.600 led him to take that that job. From your your 0:13:05.679 --> 0:13:08.640 relationship with him, knowing him, help us understand why he 0:13:08.640 --> 0:13:10.480 would take this job. This seems like a real dog's 0:13:10.480 --> 0:13:12.599 dinner in a way to become White House Chief of 0:13:12.600 --> 0:13:15.840 Staff at this point, Uh, well, I know John Kelly 0:13:15.920 --> 0:13:19.120 for over four years. We were a young lieutenants banging 0:13:19.160 --> 0:13:24.200 around on Carrier Forestall back in the late seventies. Um, 0:13:24.240 --> 0:13:26.480 and he is all about dude. He comes out of 0:13:26.559 --> 0:13:31.360 a tough neighborhood in Boston, where you stand with your friends, 0:13:31.440 --> 0:13:34.920 you work for someone, it matters. The relationships you have 0:13:35.840 --> 0:13:39.400 are who you are. So it is a dog's breakfast 0:13:39.440 --> 0:13:42.000 for him to shift the meal time slightly. And I 0:13:42.000 --> 0:13:46.080 think that that General Kelly took the job because he 0:13:46.200 --> 0:13:49.959 thinks he can help the country move forward. His whole 0:13:49.960 --> 0:13:52.679 life has been about that. Well. I agree with that 0:13:52.720 --> 0:13:55.120 on duty and of course you know some of the 0:13:55.160 --> 0:13:58.040 critics have said the president was born on third base. 0:13:58.200 --> 0:14:00.240 General Kelly was out of the grand stand as the 0:14:00.320 --> 0:14:04.880 chief seats of fenwayn park Um on page one of 0:14:04.960 --> 0:14:07.839 your book, and again, folks, the leader's bookshelf my book 0:14:07.840 --> 0:14:10.360 of the summer. I'd also note that Stravidez doesn't stop 0:14:10.400 --> 0:14:14.200 writing every day see powers jaw dropping view of our 0:14:14.280 --> 0:14:18.959 oceans as well. But Admiral, you've got the chief of 0:14:19.000 --> 0:14:23.880 Staff of the Army or Di Naro writing about George Marshall, 0:14:24.320 --> 0:14:28.400 who is of generation before us, their hero. And one 0:14:28.440 --> 0:14:33.040 of the features here is speak your mind, George Marshall 0:14:33.160 --> 0:14:36.200 on speak your mind. How does anyone thought, as someone 0:14:36.280 --> 0:14:40.480 with a charm of General Kelly actually sit the commander 0:14:40.520 --> 0:14:43.400 in chief down and go, no, sir, this is how 0:14:43.400 --> 0:14:45.920 we do it. Can you envision that's going to occur? 0:14:47.000 --> 0:14:49.840 I do Tom, and he'll do it exactly the way 0:14:49.920 --> 0:14:53.320 you just said. It, but he'll do it privately. It 0:14:53.400 --> 0:14:55.680 will not be leaked. You and I aren't going to 0:14:55.760 --> 0:14:59.680 be talking about the details of those conversations. And I 0:14:59.680 --> 0:15:03.840 think General Kelly will establish rapport with the President that 0:15:03.880 --> 0:15:07.440 allows him to uh take the bark off the tree, 0:15:07.480 --> 0:15:11.320 as don rumsfl calls it, and really have that conversation. 0:15:11.760 --> 0:15:14.760 If he does, he'll succeed. If he cannot do that, 0:15:15.040 --> 0:15:18.000 he will fail. And I'd say there's a better than 0:15:18.080 --> 0:15:20.920 even chance that he'll succeed, but not much over a 0:15:20.960 --> 0:15:23.880 better than even chance. Let me get you to react 0:15:23.880 --> 0:15:26.800 to the announcement that was made on Twitter last last week, 0:15:26.800 --> 0:15:28.960 a policy announcement from the President. Tom and I were 0:15:29.000 --> 0:15:31.200 on areas. These three tweets came out of the President 0:15:31.240 --> 0:15:34.720 saying that the transgender individuals will not be allowed to 0:15:34.760 --> 0:15:37.120 serve in any capacity in the US military. I wonder 0:15:37.120 --> 0:15:39.280 if you could just react to how that announcement was 0:15:39.320 --> 0:15:42.600 handed down and if you were a commander at this point, 0:15:42.600 --> 0:15:45.800 what you would make of of of that directive communicated 0:15:45.840 --> 0:15:49.920 in three three tweets of a hundred forty characters each. Yeah, 0:15:49.920 --> 0:15:52.640 I think it would be extremely charitable to call it 0:15:52.680 --> 0:15:55.800 a policy at all that Um, they really was a 0:15:55.880 --> 0:15:59.840 series of disconnected tweets. You've watched both the uniform military 0:16:00.000 --> 0:16:02.720 in the Department of Defense effectively walk away from it, 0:16:03.200 --> 0:16:06.240 uh and say, hey, if you are transgender and you 0:16:06.280 --> 0:16:09.360 are an active duty you're gonna continue serving until the 0:16:09.480 --> 0:16:13.040 policy actually changes. It's a pretty good example of why 0:16:13.160 --> 0:16:16.680 Jim Maddis took the right course of action when confronted 0:16:16.720 --> 0:16:19.240 with a set of decisions. And these are decisions that 0:16:19.360 --> 0:16:23.560 have to be made about whether we perform surgeries, whether 0:16:23.600 --> 0:16:26.720 we take people as they are, what what are the 0:16:26.800 --> 0:16:29.800 specifics of this? And General Man has said, look, I 0:16:29.800 --> 0:16:32.240 need six months to figure this out. He's in the 0:16:32.280 --> 0:16:36.160 middle of doing that. So for the president to try 0:16:36.200 --> 0:16:40.160 and pre empt something uh, this sensitive makes no sense. 0:16:40.320 --> 0:16:43.600 And I think, frankly, those tweets have been relegated to 0:16:43.640 --> 0:16:45.880 the tweet bin of history at this point. And you're 0:16:45.920 --> 0:16:48.480 going to see the military. You're gonna see the military 0:16:48.760 --> 0:16:52.239 figure it outcome to the president regular order, make a recommendation, 0:16:52.560 --> 0:16:54.720 then we'll have a policy going forward. That's how you 0:16:54.760 --> 0:16:57.800 do business. And James Travites of course at Toughs the 0:16:57.840 --> 0:17:01.880 Fletcher School. His new book is Seapower History and Geopolitics 0:17:01.960 --> 0:17:06.040 of the World Oceans. The opening of it is absolutely spectacular. 0:17:06.600 --> 0:17:11.000 Young stevidies translating tweets on the deck of the destroyers. 0:17:11.040 --> 0:17:14.120 It goes out of San Diego Harbor, and he had 0:17:14.119 --> 0:17:16.960 to take his dramam me no, I'm kidding. Anyways, Stevinus 0:17:17.000 --> 0:17:19.800 will be with us the Seed Powers, wonderful new book, 0:17:19.880 --> 0:17:22.399 a surprising book on our oceans, and of course the 0:17:22.480 --> 0:17:26.040 Leader's Bookshop. We will continue where the Admiral Strevinus much more, 0:17:26.080 --> 0:17:30.320 of course, on international relations and your Washington. This is 0:17:30.320 --> 0:17:33.680 Bloomberg yesterday afternoon, animal Stevidus. So we had a moment 0:17:33.720 --> 0:17:35.480 in foggy Bottom we haven't had in a while. The 0:17:35.520 --> 0:17:37.800 Secretary State waltzed out to a podium and spoke to 0:17:37.840 --> 0:17:40.159 reporters for a pretty extended period of time. He marked 0:17:40.400 --> 0:17:42.520 at the end of six months in that office. And 0:17:42.520 --> 0:17:44.359 one of the things that he talked about was the 0:17:44.440 --> 0:17:46.919 U s relationship with Russia. And he said that he 0:17:47.000 --> 0:17:50.639 talked to President Putin and to Sergei Lavrov, the Ford Minister, recently, 0:17:50.640 --> 0:17:52.879 and told him that while the relationship is bad between 0:17:52.920 --> 0:17:56.520 the US and Russia, indeed it could get worse. The 0:17:56.560 --> 0:17:59.080 Secretary State scheduled to meet with Mr laugh Rov in Manila, 0:17:59.160 --> 0:18:02.440 I believe later this week give us your sense of 0:18:02.680 --> 0:18:06.000 the state of this relationship now and your prescription for 0:18:06.119 --> 0:18:10.760 what Secretary Tylorson could do to mend things a little 0:18:10.760 --> 0:18:14.679 bit here going forward. First of all, it's good to 0:18:14.720 --> 0:18:18.680 see the Secretary out and about and actually conducting some 0:18:19.160 --> 0:18:21.719 public diplomacy. He needs to do a lot more of 0:18:21.760 --> 0:18:25.600 that than he has been, and that's salutary. In terms 0:18:25.640 --> 0:18:29.120 of the relationship with Russia, David and Tom were at 0:18:29.160 --> 0:18:31.440 the lowest point since the end of the Cold War. 0:18:31.640 --> 0:18:37.560 I'd say that we have still some further bottom below us, however, 0:18:38.080 --> 0:18:41.199 and what we need to be doing is confronting Russia 0:18:41.280 --> 0:18:44.960 where we have to things like Syria where they support 0:18:44.960 --> 0:18:48.639 a brutal dictator, Ukraine where they've annexed Crimea, the cyber 0:18:48.680 --> 0:18:51.359 intrusions above all into our own electoral process. We have 0:18:51.440 --> 0:18:54.600 to confront where we must, but we should cooperate where 0:18:54.640 --> 0:18:56.960 we can. We have to look for some zones of cooperation. 0:18:57.040 --> 0:19:00.119 At the moment there are few and far between. But 0:19:00.160 --> 0:19:03.280 if I were the Secretarian State, I would put cooperation 0:19:03.320 --> 0:19:07.879 in Afghanistan, cooperation in the Arctic, cooperational counter terrorism and 0:19:07.920 --> 0:19:11.000 cooperation and counter narcotics at the top of my list. 0:19:11.040 --> 0:19:14.040 So you can at least keep a dialogue open confront 0:19:14.080 --> 0:19:18.640 where you must cooperate where you can and over time, 0:19:18.840 --> 0:19:22.840 let's hope that this Russian investigation is completed. We need 0:19:22.880 --> 0:19:26.120 to get that behind us, find out what happened, respond 0:19:26.160 --> 0:19:28.919 to it before we can really repair this relationship. We 0:19:29.000 --> 0:19:31.159 had news at the beginning of the week here Russia 0:19:31.240 --> 0:19:34.919 expelling or requesting that two thirds of our diplomatic staff 0:19:35.000 --> 0:19:38.679 in Russia leave that country. Aside from the symbolism of that, 0:19:38.720 --> 0:19:40.359 and sure enough there there, there is a lot of 0:19:40.400 --> 0:19:43.040 it there. What are the consequences of that, This this 0:19:43.160 --> 0:19:47.240 back and forth with regard to diplomatic personnel, it will 0:19:47.400 --> 0:19:51.720 further degrade relations between the countries. It's unfortunate that it 0:19:51.720 --> 0:19:55.800 occurs just as we begin to move our new ambassador 0:19:55.880 --> 0:20:01.200 to Russia, very competent uh individual John hunt Smun, former governor, 0:20:01.320 --> 0:20:05.480 former ambassador to China. Uh. He's moving towards Moscow now, 0:20:05.520 --> 0:20:09.000 but he'll arrive with a gutted staff and that he's 0:20:09.080 --> 0:20:12.400 going to create real challenges for him as he tries 0:20:12.400 --> 0:20:14.160 to get his teat on the ground. Top. We could 0:20:14.200 --> 0:20:16.320 talk for three hours this morning, Ed, Well, let me 0:20:16.359 --> 0:20:18.960 ask you about David and Nish's the Washington Post this 0:20:19.000 --> 0:20:22.840 morning with just a scathing and interesting and smart op 0:20:23.080 --> 0:20:26.760 ed on China. He talks about how the Secretary of 0:20:26.800 --> 0:20:30.200 Commerce has been humiliated by the White House. The White 0:20:30.240 --> 0:20:36.160 House was strong, harsh language, untraded on sanctions, and then 0:20:36.160 --> 0:20:38.520 the Secretary of Defense has to deal with the same 0:20:38.560 --> 0:20:42.200 dialogue of threats to the Korean How does a pro 0:20:42.400 --> 0:20:47.040 like you synthesize the bellicost nature of a White House 0:20:47.359 --> 0:20:53.280 that even defeats two visible and principal cabinet officers. But 0:20:53.400 --> 0:20:56.760 I'm really worried about with China, Tom, The big prize 0:20:56.800 --> 0:21:00.679 in this uh, in this relationship between the United States 0:21:00.680 --> 0:21:04.280 and China, is the South China Sea, which is full 0:21:04.280 --> 0:21:07.000 of hydrocarbons, which is the one piece of the puzzle 0:21:07.160 --> 0:21:10.200 China doesn't happen. They don't have oil, they don't have 0:21:10.280 --> 0:21:13.000 natural gas. They want control of those shipping lanes. This 0:21:13.160 --> 0:21:15.240 is a vast body of water size in the Gulf 0:21:15.280 --> 0:21:18.520 of Mexico, and we're gonna twist and turn over it. 0:21:18.600 --> 0:21:22.200 In this relationship, the White House has got to construct 0:21:22.320 --> 0:21:25.439 a fundamental strategy for how we're going to approach China 0:21:25.720 --> 0:21:28.760 because China is playing the long game and they're gonna 0:21:28.760 --> 0:21:31.639 say quickly if we don't map, does this start with 0:21:31.680 --> 0:21:33.719 the Philippines? I mean, how do you how do you 0:21:33.760 --> 0:21:37.800 develop a dialogue with the Philippines? And Mr Doutarte I 0:21:37.800 --> 0:21:40.520 would put Mr to Turk in the ice box at 0:21:40.520 --> 0:21:43.000 the moment. We're just not going to get anywhere with 0:21:43.080 --> 0:21:45.480 the Filipines while he's there. We ought to be focused 0:21:45.480 --> 0:21:49.440 instead on Vietnam and Malaysia, the two other principal name 0:21:49.720 --> 0:21:52.560 around that about China Sea never enough time. Thank you 0:21:52.640 --> 0:21:54.600 so much. I can't say enough about his two books 0:21:54.920 --> 0:21:59.080 see Power on Your Oceans. It is illuminating in my 0:21:59.119 --> 0:22:01.960 book of the Summer by James te Vitas and Manning Ansel, 0:22:02.359 --> 0:22:05.320 The Leader's Bookshelf. I just rave about it. It's just 0:22:05.359 --> 0:22:09.600 a fabulous, fabulous book. Throw it at every single board 0:22:09.680 --> 0:22:11.960 kid at home and say shut up and read some 0:22:12.040 --> 0:22:14.639 of the books in this book. That's what John Tucker 0:22:14.720 --> 0:22:29.680 did this summer with his kids. My colleague Alex Steel 0:22:29.720 --> 0:22:32.120 sitting down with Lloyd blank Find and Michael Bloomberg. Here 0:22:32.480 --> 0:22:35.440 is Alex, Lloyd tell us why we're here in Baltimore today, 0:22:35.640 --> 0:22:38.719 we're here in Baltimore to um to attend a graduation 0:22:39.000 --> 0:22:43.080